Economics • Banking & FinanceMedium
In the context of Indian banking operations, what is an 'Escrow Account' primarily used for?
A. An account held by a third party on behalf of two other parties in a transaction, ensuring funds are released only when specific contractual conditions are met.✓ Correct Answer
B. A tax-free savings account dedicated exclusively to senior citizen pension disbursements.
C. A specialized foreign currency account maintained by exporters to retain outward remittances.
D. A liquidity buffer account maintained by scheduled banks with the RBI to satisfy the CRR.
💡 Solution & Explanation
An escrow account is a contractual arrangement where an independent third party temporarily holds financial assets or documents on behalf of two primary transacting parties until specific pre-defined conditions are fulfilled. Wrong alternatives incorrectly describe specialized tax-free savings vehicles, foreign currency accounts for exporters, or central bank liquidity buffers. This mechanism is extensively used in mergers and acquisitions to mitigate counterparty default risks during corporate restructuring.
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